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Americans no doubt would be distressed to learn that the U.S. government helped finance the terrorist attacks that killed so many people in New York and Washington.

It’s not such a far-fetched thought. According to House Speaker Dennis Hastert, terrorist organizations are financed in part by profits from trading in drugs. “The illegal drug trade is the financial engine that fuels many terrorist organizations around the world, including Osama Bin Laden,” Hastert said.

But what makes the drug trade so profitable? Just one thing: The U.S. war on drugs. How ironic! The war on drugs is now necessitating the war on terrorism. War does indeed beget war.

This is a particularly sordid example of what the CIA calls “blowback,” the backfiring of an official operation.

Drugs in themselves are fairly cheap to produce. Growing marijuana, poppy for opiates, and coca for cocaine is no big deal. Poor people do it all over the world. The processing of those crops into usable drugs is also relatively inexpensive.

What makes the drug industry so lucrative is the U.S.-led effort to stamp it out. With prohibition comes high risks and thus elaborate efforts to hide drug-related activity — in a word: the black market. Black markets always produce high profits; they are the premium needed to compensate those who undertake great risk to produce the prohibited product in defiance of the authorities.

This is nothing new. It is the well-grounded economics of black markets. Opponents of prohibition have long held that the way to remove the exorbitant profits from drug dealing is to end prohibition. Few in the policymaking world would listen.

Now it is clear, if it wasn’t already, that drug profits are used to finance abominable operations, such as terrorist organizations that seek to kill innocent people. This should surprise no one.

Black markets tend to be run by the most ruthless and despicable characters around. Because black markets are outside the law, the standard forms of resolving disputes are unavailable to their personnel. If a multimillion-dollar drug deal goes awry, the wronged party can’t sue the offender. The courts are not open to him. So he’s likely to take matters into his own hands. That means violence.

For obvious reasons, then, the drug trade will attract those with the fewest scruples about using violence. Indeed, it will reward those who are best at it. Enter those who wish to engage in terrorism.

It has long been known that violent groups in Latin America have made money by protecting coca farmers from government agents, both American and indigenous. It should come as no surprise to learn that the same happens in Asia and the Middle East.

Make no mistake about it: it is U.S. policy that creates a harmony of interests between violent guerilla organizations and poor farmers trying to make a living by growing crops needed for the production of drugs. The U.S. government has foolishly hoped that those farmers could be encouraged to grow legal crops. It has even tried to poison the illicit crops. But those efforts are futile, because the financial reward for producing drugs is so large.

In fact, the reward is so large that often the U.S. government’s foreign partners in the anti-drug effort are also involved in the black market. Nothing is better at corrupting the law-enforcement establishment than prohibition. Let’s not forget our own history.

But the U.S. government persists in its worldwide war on drug producers and traders despite countless failures and “blowbacks.” Let’s be blunt: every U.S. drug czar has been an unwitting financier for terrorists.

No one is saying that drugs are the only source of money for terrorists. But the multibillion-dollar industry is undoubtedly a major source. Denied that money, the terrorists would have to operate at a far more modest level. And the lives of many innocent people would be saved.

Here, then, is another good reason to end the absurd war on drug producers, sellers, and users. There were plenty of good reasons already. But this one might finally get people to reconsider this truly stupid policy.

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Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State.
Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..."
Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics.
A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.

Reading List

Prepared by Richard M. Ebeling

Austrian economics is a distinctive approach to the discipline of economics that analyzes market forces without ever losing sight of the logic of individual human action. Two of the major Austrian economists in the 20th century have been Friedrich A. Hayek, who won the Nobel Prize in Economics, and Ludwig von Mises. Posted below is an Austrian Economics reading list prepared by Richard M. Ebeling, economics professor at Northwood University in Midland and former president of the Foundation for Economic Education and vice president of academic affairs at FFF.